U.S. initial jobless claims fall for third consecutive week but remain historically high

*U.S. initial jobless claims declined to 4.4m during the week ending April 18 from 5.2m in the prior week, the third consecutive weekly decline, though claims remain extremely high (Chart 1). Initial jobless claims have totaled 26m between March 15 and April 18, exceeding the 23m jobs added by U.S. establishments over the prior ten years.

*Continuing claims for unemployment insurance, which are reported with a two-week lag, increased to 16.0m during the week ending April 11 from 11.9m in the prior week, more than doubling its high from the Great Recession of 2008-2009 (6.6m) when the unemployment rate peaked at 10% (Chart 2).

States reporting the highest number of initial jobless claims (in non-seasonally adjusted terms) for the week ending April 18 include California (534k), Florida (505k), and Texas (280k). Note that Florida’s estimated initial claims increased by 325k from the prior week (180k). Encouragingly, almost all other states reported declines in initial claims, but overall, the descent in claims continues to be slow.

The estimate of unemployment in the April Employment Report (scheduled for release on May 8) will reflect labor market conditions for the week of April 12-18, which should include the 26m initial jobless claims between March 15 and April 18.

The CARES ACT, which enhances and expands unemployment insurance (UI), is quite generous and has minimized the financial loss for many households. It provides an additional $600 per week for four months of UI coverage and it expands unemployment benefits to cover nontraditional, so-called “gig workers” who are legally independent contractors rather than employees of firms. As a result, continuing jobless claims will remain elevated for some time.

Congress is in the process of approving additional funding for the Paycheck Protection Program (PPP), which aims to incentivize small businesses to maintain payrolls. Based on the massive jump in jobless claims, the program has not been very successful in achieving this goal, but ideally it will enable businesses to restart operations soon after the acute stage of this crisis ends.

Note that furloughed employees and those on temporary layoff are also eligible for unemployment insurance benefits. Ideally, all of these workers would be able to return to their jobs as soon as worst of this crisis ends, but some businesses may permanently reduce payrolls because of weak demand and some businesses may permanently close. The labor market will not snap back.

Chart 1:

Chart 2:

Roiana Reid, roiana.reid@berenberg-us.com

Member FINRA & SIPC
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